BUENOS AIRES, ARGENTINA — Days before Christmas of 2001, a 54-year-old Argentine woman named Norma Cecilia Albino shoved her way past the throngs of demonstrators protesting the government’s new banking restrictions, walked into a bank branch in a northern Buenos Aires neighborhood, strolled to the counter, and asked to withdraw a few pesos from her account.
When the cashier explained to Albino that she’d already reached her limit and would not be able to withdraw more until the following month, Albino calmly rumbled through her purse for a bottle of alcohol, doused herself with it, and then, to the horror of a nation, set herself ablaze inside the bank lobby.
Albino survived after bank employees rushed to put out the flames with a fire extinguisher and clothing. But the traumatic moment is emblematic of the trauma inflicted on the country by a deep economic downturn that rivaled the Great Depression; Argentines dubbed it “La Crisis.”
Snatching poverty from the jaws of prosperity
For most of the 20th century, Argentina’s was the most prosperous and industrialized economy in Latin America, and virtually everyone who wanted a job could find one. Israeli agents managed to kidnap the fugitive Nazi Adolf Eichmann in 1960 simply by waiting for him to finish his shift at a Buenos Aires water plant. Then in 1991 — with the encouragement of the world’s two most powerful financial institutions, the World Bank and the International Monetary Fund — Argentina’s investor-friendly government decided to root out inflation by fixing the exchange rate of the local currency: one peso for one U.S. dollar.
Within two years, the peg had sharply curbed inflation, from an annual rate of 84 percent to one of 7.4 percent. But it also raised prices on locally produced goods, making Argentina’s products too expensive to sell abroad and goods shipped into the country artificially cheap. Brands made in Spain and the U.S. began to fly off the shelves and — much like the disillusioned, bankrupt protagonist of Ernest Hemingway’s The Sun Also Rises — Argentina went broke, “gradually at first, and then suddenly.”
In the postwar period, the country had never seen its unemployment rate rise above 4 percent; by the time of Albino’s self-immolation, it was 22 percent. The percentage of Argentines living in poverty soared to 56 percent, more than the previous peak by a factor of 10.
Recovery through isolation
But, beginning with the 2002 devaluation of the peso and President Nestor Kirchner’s default on nearly $100 billion in government loans the following year, Argentina’s economy began to recover. With less money leaving the country to buy foreign-made goods and pay foreign bondholders, more was available for investment and poverty relief; Argentina’s economy grew by an average of 8 percent a year for the next five years, and continued even after Kirchner died unexpectedly and was succeeded as head-of-state by his widow, Cristina, in 2010. As a result of its default, Argentina was a pariah in the capital markets but a quarter of the population put poverty in their rearview mirror.
Back into the debtor-nation buzzsaw: a lesson apparently not learned
But now Argentines are beginning to worry that La Crisis is returning. On May 8, President Mauricio Macri announced that he is seeking a credit line worth at least $19.7 billion from the IMF to fund the government through the end of his first term in late 2019. Days later, Argentina’s central bank announced it would raise interest rates to 40 percent — the highest in the world — to curb runaway inflation.
The return to the international financial system sent thousands of angry Argentines into the streets this month, some with signs declaring “enough of the IMF.” Retail sales contracted by 3 percent in April; consulting houses, like the London-based Capital Economics, predict high interest rates will tip Argentina into a recession this year. Workers are demanding higher wages, Macri’s popularity has plummeted, and some data suggests that many Argentines have returned to the custom of hiding dollars underneath their mattresses: dollar deposits in Argentine banks fell 2 percent between April 27 and May 14, according to data obtained by Reuters.
Small-business owners like Maria Florencia Humano are closing for good. Unable to pay either the rent or the business loans she took out, she told Reuters that she has moved in with her sister to cut costs. Said Humano of Macri, who is the scion of one of the country’s wealthiest families:
I voted for him. I made a bet and believed in him. Now I don’t believe anyone.”
What is unfolding in Argentina is the third act of a sovereign-debt crisis that began in the late 1970s after a military junta introduced neoliberal trade policies, Paul Cooney, an economist at the National University of General Sarmiento in Buenos Aires, told Mintpress. The military’s reforms were quite mild, however, compared to those implemented by Carlos Saul Menem, who was elected president in 1989 and went on to effectively dismantle the modern industrial state in Argentina — a country that boasted its living standards were more comparable to those of France than to any of its South American neighbors, save perhaps Chile. The Kirchners represented a return to Keynesian macroeconomic policies, but Macri has put the country back on the neoliberal path with policies that favor big agricultural producers inside the country, and investors both inside and outside of Argentina. Said Cooney:
The same thing is happening again. Industry has really worsened and Argentina is once again on the edge of a likely transformative recession.”
Macri campaigned to reverse the Kirchners’ trade policies, which have isolated the country from the global marketplace. He settled with the nation’s remaining creditors and last year issued $2.75 billion of dollar-denominated bonds with a 100-year maturity; investors snapped them up.
Macri’s free-market credentials earned him a 2017 invitation to the White House to meet U.S. President Donald Trump, who earlier this month on Twitter hailed the Argentine leader’s “vision for transforming his country’s economy.”
A contraction that only global investors could love
This economy is not identical to the depression that began in 1998, Cooney said. That downturn was grounded in the 1-to-1 peg between the dollar and the Argentine peso, which effectively took an elephant gun to inflation. But the central bank’s interest rate hikes exert the same contractionary pressures on the economy by drying up lending to households and small businesses in Argentina. Buying power declines, businesses have to lay off employees, and the government, grappling with a shrinking tax base, has to borrow to make ends meet. Argentina is saddled with more than $320 billion in external debt, equivalent to 57 percent of Gross Domestic Product, much of it denominated in dollars.
French Supermarket chain Carrefour, which employs 19,000 people in Argentina, announced in April a plan to lay off an unspecified number of workers as part of a “crisis prevention plan.”
Eduardo Fernandez — head of an organization known by its Spanish acronym, APYME, which represents about 10,000 small firms nationwide — told Reuters that Argentina’s return to the IMF represents a failure of Macri’s economic policies, which are now clobbering mom-and-pop operators. He said:
With this rate increase, we can’t request credit; we are in a very difficult situation.”
Fabian Castillo, owner of a Buenos Aires shoe factory, told Reuters that with the cost of essentials like rent, food, and utilities rising, Argentines are simply doing without extras.
Anyone selling perfume, clothes or shoes is having a hard time getting to the end of the month.”
Whether through raising interest rates or pegging domestic currencies to the U.S. dollar, the objective is to reduce inflation, which is, to be sure, not good for anyone. Poor people hate to see higher prices for a loaf of bread or a bag of rice, but studies have shown that moderate levels of inflation don’t adversely impact economic growth. It does, however, impact profits, which is why financiers have been obsessed with inflation since the 1973 stagflation crisis in the U.S. that was driven by high wages and high commodity prices. Milton Friedman and his coterie of advisors from the University of Chicago — the Chicago Boys as they were famously dubbed — coaxed the dictator Augusto Pinochet to fix the exchange rate of the Chilean peso at 1.4 to the U.S. dollar in 1974, months after the General led a military coup that overthrew the Socialist president, Salvador Allende.
The country’s jobless rate climbed to 33 percent.
Today, Chileans of a certain age jokingly refer to the Chicago Boys derisively in Spanish as “Si, Cago, Voy,” which translates as “Yes, I shit, I go.”
Top Photo | A demonstrator wearing a mask showing a detail of a U.S. dollar bill protests the government’s plans to make a deal with the IMF and increase the price of services such as gas and electricity in Buenos Aires, Argentina, May 14, 2018. President Mauricio Macri announced that he will seek a financing deal with the IMF following a sharp devaluation of its currency. Natacha Pisarenko | AP
Jon Jeter is a published book author and two-time Pulitzer Prize finalist with more than 20 years of journalistic experience. He is a former Washington Post bureau chief and award-winning foreign correspondent on two continents, as well as a former radio and television producer for Chicago Public Media’s “This American Life.”